Online businesses are constantly looking for ways to improve their performance. One way they can do this is by tracking their key performance indicators (KPIs). E-commerce organizations may make better decisions to boost their bottom line by knowing which KPIs and indicators to measure.
This article will cover some of the most important KPIs and metrics for e-commerce businesses to measure. We'll also focus on how demand generation marketing can help an e-commerce business.
What is an e-commerce KPI?
An e-commerce KPI is a performance indicator that helps businesses measure their success in online sales. Companies can track many different KPIs. Some common ones include website traffic, conversion rate, and average order value.
E-commerce's key performance indicators (KPIs) help gauge your company's health. It helps you compare it to revenue growth, new customers gained, and problem resolution. Your e-commerce KPIs should be chosen with your overall business objectives in mind.
E-commerce companies sometimes get help from dedicated on-demand service providers.
These on-demand service providers help e-commerce companies with:
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Lead generation companies offer services such as:
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Top 9 Best Metrics and Key Performance Indicators (KPIs) for E-commerce
The internet has drastically changed the way we do business. E-commerce is one of the most popular ways to conduct business today. A key performance indicator (KPI) is a metric used to evaluate how well a company achieves its desired results.
There are many different KPIs that can be used to estimate the success of an e-commerce business. Here we'll discuss some of the best KPI metrics for e-commerce businesses.
1. Conversion Rate (CR)
One key performance indicator (KPI) that can help you evaluate how well your organization is doing is the conversion rate (CR). Most of the time, when discussing online shops, the conversion rate stands in for actual sales.
A conversion rate is a metric that estimates the percentage of visitors to your online store who take the desired action, such as conducting a purchase or subscribing to a newsletter. By tracking your store's conversion rate, you can identify areas where your website may fall short and make changes to improve the customer experience and boost sales.
Several factors can influence your store's conversion rate, including the design of your website, the clarity of your product descriptions, and the effectiveness of your call-to-action. Understanding the impact of conversion rate can enable you to make strategic changes to drive more sales and grow your business.
It is a statistical measure of how likely an outcome is relative to the frequency with which it has occurred. Because of this, the conversion rate is frequently used to evaluate the efficacy of a digital marketing initiative.
The simple formula of CR is:
Conversion rate = (Number of traffic/ Number of sales) x 100
2. Average Order Value (AOV)
Average Order Value (AOV) is a metric that measures the average value of an order placed on an e-commerce website. This metric is used to track and optimize the overall performance of an online store.
AOV can be calculated by dividing the total revenue of an online store by the number of orders placed. For example, if an online store has generated $100,000 in sales from 1,000 orders, its AOV would be $100.
The AOV metric is essential for e-commerce businesses because it helps them to understand how much each customer is spending on average. This information can make strategic decisions about marketing, product pricing, and other business areas.
The simple formula of AOV is:
Average order value = Earnings / Orders number.
3. Customer Lifetime Value (CLV)
In the e-commerce world, customer lifetime value (CLV) is the metric that tells you how much revenue a single customer brings in over their lifetime.
To calculate CLV, take the total revenue a customer has generated and divide it by the number of days they've been a customer.
For example, if a customer spends an average of $100 per month and has been a customer for 10 months, their CLV would be $1,000.
You can also use CLV to predict future spending patterns and to help you make marketing decisions. For example, if you know that your average CLV is $1,000, you can spend up to $100 on acquiring new customers without losing money.
The simple formula of CLV is:
Customer lifetime value = (Profits X average period buyers are customers) – the acquisition cost.
4. Shopping Cart Abandonment Rate (CAR)
The shopping cart abandonment rate (CAR) is the percentage of online customers who add items to their shopping cart but do not finish the purchase. The rate varies by industry, but the average CAR is around 68%.
There are several reasons shoppers may abandon their carts, including high shipping costs, unexpected fees, difficulty navigating the checkout process, and a lack of trust in the online store.
Reducing shopping cart abandonment is essential for e-commerce businesses, as it can lead to increased sales and improved customer satisfaction. Several ways to minimize CAR include offering free shipping, providing clear and concise product information, and streamlining the checkout process.
The simple formula of CAR is:
Cart abandonment rate = 1 – (Transaction amount / Carts) x 100
5. Customer Acquisition Cost (CAC)
In e-commerce, customer acquisition cost (CAC) is the entire cost of acquiring new customers through marketing and advertising. This includes the costs of online and offline marketing campaigns, website development and maintenance, sales staff salaries, and other associated expenses.
To calculate your CAC, divide your total marketing and advertising expenditures by the number of new customers acquired during that time. For example, if you spend $100,000 on marketing and advertising in a month and reach 1,000 new customers. As a result, your CAC would be $100.
Keeping your CAC as low as possible while still acquiring enough new customers to grow your business is essential. A high CAC can strain your resources and make it difficult to achieve profitability.
The simple formula of CAC is:
Customer acquisition cost = Cost expended on acquiring customers / Nº of new consumers.
6. Repeat Purchase Rate (RPR)
The repeat purchase rate (RPR) is a crucial metric for e-commerce businesses. It measures the percentage of customers who make a second purchase from a store. A high RPR indicates that customers are happy with their first purchase and will likely return for more.
A few factors can influence a customer's decision to make a repeat purchase:
👉🏽 They must be satisfied with the quality of the product or service.
👉🏽 The price must be fair.
👉🏽 The customer experience must be positive.
A high repeat purchase rate is essential for e-commerce businesses to thrive. Not only does it mean that customers are happy with your products or services, but they're also likely to continue doing business with you in the future.
The simple formula of RPR is:
Repeat purchase rate = Buys from repeat customers / Complete number of sales
7. Churn Rate
The churn rate is one of the essential metrics for e-commerce businesses. It measures how many customers are leaving your site and how quickly they are doing so. A high churn rate can indicate that your site is not meeting customer expectations, leading to lost sales and decreased profits.
There are a few key ways to reduce the churn rate, such as improving the customer experience, offering more attractive pricing, and providing better customer service. By understanding what causes customers to leave your site and taking steps to prevent it, you can keep more customers coming back to your business again and again.
The simple formula for churn rate is:
Churn rate = (Lost customers / Customers in that time) x 100
8. Purchase Frequency
In e-commerce, purchase frequency is defined as the number of times a consumer buys from a store within a given time period. This metric is important because it helps store owners track customer loyalty and repeat business.
Several factors can affect purchase frequency, such as product availability, price, shipping costs, and customer satisfaction. Store owners can use purchase frequency to measure the success of marketing campaigns and track changes in customer behaviour over time.
By understanding purchase frequency, store owners can make strategic decisions to improve their business and keep customers returning for more.
The simple formula of purchase frequency is:
Purchase frequency = Order number / One-time customer number.
9. Inventory Turnover
Inventory turnover is one of the essential metrics for e-commerce businesses. It measures how quickly an enterprise sells its inventory and replaces it with new inventory. A high inventory turnover rate means a business sells its products promptly and efficiently. A low inventory turnover rate can indicate that a company is not selling its products quickly enough or carrying too much inventory.
There are some unique ways to calculate inventory turnover. The most common way is to divide product cost by the average inventory level. This will give you the number of times your inventory turns over in a year.
Another way to calculate inventory turnover is to divide the number of sales by the number of days it takes to sell your average inventory. This will determine the number of times your inventory turns over in a day.
The simple formula of Inventory Turnover is as follows:
Inventory turnover = Sales average / Inventory average.
Measuring key performance indicators (KPIs) and metrics are necessary to have a successful e-commerce business. These 9 KPIs and metrics are essential for e-commerce businesses to measure to optimize their performance. By focusing on these critical areas, companies can ensure that they are providing the best possible experience for their customers and driving conversions.
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